Trump tariffs projected to raise car insurance rates in California
Traffic seen in the Bay Area.
OAKLAND, Calif. - Auto insurance rates in California, already facing likely increases this year, are projected to surge even higher, due to the 25% tariffs on Mexican and Canadian imports imposed by Donald Trump.
The taxes that went into effect at midnight will affect a wide range of imported products, including auto manufacturing parts.
By the numbers:
California, which was already projected to see a 6% rise in insurance costs, is now expected to be hit with among the highest rate hikes in the country— a 9% spike by the end of the year, according to new figures from insurance comparison website Insurify.
That would mean an increase of more than $230 by the end of the year, sending the projected annual cost of full auto coverage in California to $2,807.
Researchers also noted that tariffs on Canada and Mexico may cause car insurance rates to rise about 50% faster in California than they would without the tariffs.
Big picture view:
The cost increase stems from the supply chains that auto companies have built with manufacturers across the U.S. borders with Mexico and Canada.
Insurify cited figures that showed that Mexico and Canada accounted for about 35% of U.S. steel imports last year. Canada provided roughly half of U.S. aluminum imports.
Overall, more than 30% of the total auto parts supply was imported from Canada and Mexico, Insurify said.
The outsourcing of auto manufacturing lowers costs, but "the tariffs would nullify those cost savings," Insuify said.
And it’s not just auto parts.
"One-fifth of the cars and light trucks sold in the U.S. come from Canada and Mexico," Insurify said.
The 25% tariffs on those imports would likely be passed on down the line to affect consumers and eventually roll into increases in auto insurance rates, as carriers face higher costs on claims to repair auto damages.
"As the price of replacement parts increases, premiums will have to increase accordingly," said Daniel Lucas, carrier relations manager at Insurify.
New car costs
It stands to reason that the tariffs would also increase the cost of new vehicles.
Insurify cited figures from equity research firm Wolfe Research, which projected the average cost of a new car would surge by $3,000 in the U.S., due to the tariffs.
"The average model costs $48,641, and that price would rise to $51,641," the insurance comparison site noted.
Automakers most affected
The research also listed the top automakers that could be the most affected by the tariffs.
They include Audi, Ford, Mazda, and Nissan, which each have multiple models with more than 50% of parts coming from Mexico.
Tesla's Imported Parts :
Insurify noted figures from Wolfe that showed Tesla has about 20% to 25% of its parts coming from Mexico.
"Their analysis suggests a 25% tariff on parts from Canada and Mexico would raise Tesla’s costs by an estimated $1.6 billion per year," Brannon explained, adding, "Tesla makes batteries in China, which is also facing new tariffs."
Industry experts also speculated that Tesla's CEO's connection to the Trump administration could lead to action from countries being slapped with tariffs.
"Tesla may be targeted for additional retaliatory tariffs given CEO Elon Musk’s relationship with the White House," Insurify noted, attributing Wolfe.
SEE ALSO: State Farm asks California again to raise homeowner insurance rates by 22%
California's risks
Even without the tariffs, California was expected to see a rise in auto insurance from factors including wildfire risk.
"In the aftermath of California’s devastating wildfires, auto insurers will likely increase their rates to reflect the growing risks from such climate-related events and losses," Insurify researchers noted.
California's projected 9% increase in rates comes after an astounding 48% jump last year from the previous year. The big surge came after the state paused rate hikes for two years amid the COVID-19 pandemic.
"During this time, insurers took on more losses and were unable to offset those losses with rates that match risk. Since the end of the rate freeze, insurers are trying to better align rates with risk," Insurify data journalist Matt Brannon explained, adding, "This results in larger rate increases."
From housing to gas and other cost of living spending, consumers in the Golden State often pay more than much of the country.
Nationwide, the average for full coverage is expected to increase to about $2,500 annually. That's more than $300 higher than California's projected rate increase.
Across the board, the tariffs-driven hikes could be even larger. Insurify noted that its estimates were on the more cautious and conservative side.
"The impact of tariffs could easily be more widespread than anticipated," Brannon said, "impacting the auto supply chain and driving up car insurance rates higher than we project."
State Farm asks California again to raise homeowner insurance rates by 22%
State Farm is asking the state of California if it can temporarily raise its homeowner insurance rates because the company says that paying out claims for the Los Angeles wildfires is hurting its finances.